As the fourth quarter of the year approaches, it's easy to get caught up in what for many businesses is the busiest time of year: the holidays. But we all know that when you're exceptionally busy, you might not be operating at your best — meaning you might make a few bad business decisions along the way.
That's why the start of the fourth quarter is a great time to check in on your business progress.
When you first start your business, you can make goals, but it will take time to see how your initial goals measure up to the reality of day-to-day operations. Instead of becoming overwhelmed by the various metrics you could measure on a regular basis, it may better serve your goals to focus on a few key metrics — you may see them mentioned as key performance indicators, or KPIs.
KPIs disregard subjective information like online reviews or social media engagement; it's all about the numbers. The metrics you choose to track depend on the areas in which you want your business to grow.
You might focus on a few of the following:
Monthly cash flow forecast
A cash shortage can severely limit your ability to grow your business. By tracking your checking balance, along with which accounts you expect to receive in the next 30 days and which you expect to pay, you'll have some warning if there's a shortage ahead.
Similarly, a positive forecast can help you decide when to order additional inventory or how much money to save to cover costs during any slow periods.
Inventory turnover
How long does your inventory sit on the shelves before it goes home with a customer? Do some products languish and gather dust while others sell out quickly? Reviewing what's selling and what's not can help you plan your buying cycles better — while also taking note of customer spending habits and style preferences.
Profit margin
Business success isn't just about selling; it's also about pricing products to generate profits once the cash register closes.
Consider the costs of each of your product areas — don't forget to include shipping or processing costs, or additional packaging needs. Does your price tag cover those costs while still allowing for a healthy profit margin? If not, it's time to rethink your pricing or reconsider some of your inventory.
Customer acquisition cost
How much does the average customer spend at your business? Is it less than you're spending to attract them? Review your marketing budget to determine the cost of drawing in each customer and converting those leads to sales. Typically, you'll hope this cost goes down over time; but if you offer high-priced products or have an upscale clientele, your costs may stay relatively high.
Looking at metrics like these can help you set SMART goals for business growth in the fourth quarter — and well into the coming year. Challenge yourself to review your KPIs quarterly to keep your company on track! Not sure how to give your business the check-up it needs? Meet with a SCORE mentor who can help you analyze the numbers.